Refinancing your auto loan after repossession is possible. If your car gets repossessed, knowing what to expect and what your options are for refinancing can make the situation a little less intimidating.
Losing your vehicle to repossession is not necessarily permanent. Lenders may be willing to negotiate new terms following a repossession.
Learn more about refinancing your car after repossession, including how to get your car back from a repossession, refinancing after a repossession, how a repossession affects your credit, and more.
Key Points
• While it’s possible to refinance your auto loan after a repossession, it can be difficult due to the negative impact on your credit score and the loss of trust from lenders.
• If your vehicle has been repossessed, you might have the opportunity to reinstate your loan by paying the overdue amount along with any associated fees.
• If your original lender is unwilling to refinance, exploring options with other financial institutions or credit unions might be beneficial.
• Having a cosigner with a strong credit profile can improve your chances of securing an auto refinance loan.
• Taking steps to rebuild your credit after car repossession, such as timely bill payments and reducing outstanding debts, can help improve your financial standing over time.
When Can a Car Repossession Happen?
If you’re unable to pay your monthly loan payment on your car, the bank can repossess it. Now you’re without a vehicle to get to work, and you’re likely at a loss about what to do next.
A car repossession can happen if you default on a secured auto loan. A secured auto loan is a traditional car financing contract in which the lender has a lien or security interest in the vehicle until the loan is paid off. The security interest gives the lender the right to seize or repossess your vehicle if you default on the loan. A default can occur if you fall into delinquency and fail to make required car loan payments.
A number of situations can make it difficult to pay your loan. You might have lost your job and not have the funds to cover your bills. Or maybe you have an upside-down auto loan, meaning you owe more than the vehicle is worth and are struggling to pay it down.
Some lenders may be flexible and provide you with a little leeway if you’re having a temporary financial issue. The key is to communicate with your lender.
Recommended: Refinance Car Loan With Same Lender
How to Get Your Car Back From a Repossession
Whether you can get your car back after being repossessed depends on several factors, including how many months you’ve gone without making a payment on your loan. If it’s been a month or two, your lender may work with you to let you catch up on late payments and get your vehicle back. If it’s been longer, the lender may sell your car at auction to recoup the cost of the loan you didn’t finish paying.
In addition to catching up on past-due payments, you may also have to cover costs associated with the repossession process, which could include towing and vehicle storage.
It’s important to understand that even if your car is seized and sold at auction, you may still be on the hook for paying the balance on the loan. If the auction sells the vehicle for less than you owe, you will still be responsible for paying the difference, including any outstanding principal, interest, and fees. Let’s say you owe $3,000 and the car sells for only $2,000. You would still owe your lender $1,000, even though you no longer have the car.
Can You Refinance a Car Loan After Repossession?
So, can you refinance an auto loan after repossession? Yes, refinancing your car loan after repossession is a possible option to explore.
If you want to refinance after repossession, it might make sense to refinance with the lender you already have a loan with. But realize you’ve got a lot working against you there, since that lender has already seen you miss payments and has had to go to the trouble of repossessing your car. However, your lender might consider giving you a refinance if you refinance over a longer period for a lower monthly payment.
If your original lender refuses, you’re not out of options for refinancing your auto loan after repossession. Check if you qualify with a bank or another auto lender. If you don’t, perhaps because your credit scores dipped from delinquency and repossession, consider adding a cosigner to qualify for an auto loan refinancing at a decent rate.
Recommended: Pros and Cons of Car Refinancing
Watch Out for Predatory Lenders
When you start looking for refinancing options after your car is repossessed, you may come across lenders who seem ready to bend over backward to get you the refinance loan you need. But that comes at a price.
These lenders may say that even if you have bad credit, you can qualify for a car loan. This could be appealing if you do indeed have bad credit, but look out for astronomical interest rates, hidden fees, and other tactics associated with predatory lending. Read the fine print carefully and don’t let a sales rep pressure you into any financing you’re not fully on board with. Ask important questions regarding your possible new loan, including:
• What’s the monthly payment?
• For how many months will you have to make payments?
• What’s the APR on the car loan?
• Do the finance charges on the car loan use simple or precomputed interest?
• What’s the total cost of the loan?
• Are there any prepayment penalties or other fees?
• Finally, if your gut says something is fishy, just walk away.
Recommended: Refinancing With Bad Credit
How Long Does a Car Repossession Affect Your Credit?
Does refinancing hurt your credit? Yes, refinancing may cause a temporary dip in your credit score if the lender conducts a hard pull inquiry into your credit report, but having your car repossessed can cause greater damage.
A car repossession can affect your credit in the following ways:
• Repossession can leave a derogatory mark on your credit report for seven years from when you stopped paying your auto loan.
• Having a repossession recorded in your credit report can make it more difficult to get another loan.
• You’ll have late or missing payments on your auto loan, which may be reported to credit bureaus.
• If your car is repossessed, you may have a collection account on your credit report reflecting that.
• You may also have a court judgment if the collections company is unable to collect the balance you owe.
Is Voluntary Surrender Better Than Involuntary Repossession?
One way to potentially lessen the impact of a car repossession — including the embarrassment of having it towed from your driveway — is through a voluntary surrender.
Some borrowers with delinquent car loans may prefer voluntary surrender over having their car taken at an unsuspecting time through repossession. Voluntary surrender happens when you contact your lender and volunteer to give up the car rather than having it repossessed involuntarily. This shows your willingness to be responsible and can save you the hassle of an involuntary repossession. Nonetheless, voluntary surrenders may appear on your credit report.
What Is a Voluntary Surrender?
Rather than waiting for your car to be taken, you can reach out to your lender to inform them that you are unable to continue paying on the loan. You can then make arrangements to give up the vehicle on your own accord. This is called a voluntary surrender.
A voluntary surrender may lead to the following outcomes:
• When you reach out, the lender may want to work with you to find a way for you to continue paying the loan.
• The voluntary surrender may appear on your credit report as a voluntary surrender, which can show other lenders that you were cooperative in trying to work out a solution on your auto loan.
• Your credit scores may be impacted.
A voluntary surrender is a derogatory event, but some creditors may view it as less egregious than an involuntary repossession. That being said, losing your vehicle to repossession is not necessarily game over. You may be able to get your car back by reinstating your car loan.
Recommended: How to Sell a Car You Still Have a Loan On
The Takeaway
Refinancing an auto loan after a repossession can be challenging, but it’s not impossible. By understanding your credit situation, exploring lender options, and demonstrating financial responsibility, you may be able to secure better terms or even qualify for a new loan down the line.
If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.
FAQ
Can you refinance after your car has been repossessed?
Yes, you can refinance after your car has been repossessed, but it’s difficult. Repossession severely impacts your credit, making it harder to qualify for traditional refinancing. However, some lenders offer options for those with poor credit, especially if you’ve rebuilt your credit and can show financial stability and consistent income.
What does it mean to be upside down on a car loan?
To be upside down on a car loan means you owe more than the current value of the vehicle. It’s also known as being underwater.
Can you get a loan after a repossession?
Depending on your qualifications, you may be able to get a consumer loan after repossession. This includes the possibility of getting another car loan, but the financing may come at a higher interest rate than what you had previously qualified for.
Photo credit: iStock/MCCAIG
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